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Prime Minister Bill English has made a decisive move to raise the superannuation age to 67 from 2040, but the Government needs to address the issue of future healthcare costs at the same time.

Thanks to an ageing population, healthcare inflation, and the rise of new and costly treatments, New Zealand's health spending has one of the fastest rates of increase in the OECD.

The Treasury has repeatedly advised this unsustainable growth presents a bigger fiscal problem for the Government than the soaring cost of NZ Super.

Super costs had been projected to go from 5 per cent of GDP to 7.9 per cent by 2060, but with the announcement to raise the entitlement age this may now be closer to 7 per cent. However, the nation's publicly funded healthcare costs are projected to jump 9.7 per cent of GDP over the same period.

This represents a 56 per cent jump on 2015 funding and about $8 billion in today's terms, an amount governments will have difficulty coming up with by simply making efficiencies in our public hospitals.

Other policy options such as increased user charges and greater rationing and waiting lists are all likely to be needed in the coming years, although these still are unlikely to match the shortfall.

The vast bulk of the $8b gap will likely manifest itself in two ways: people paying a greater share of their own healthcare costs, and growing unmet need.

Currently about 20 per cent of healthcare in this country is privately funded, amounting to about $4b a year. Just over a quarter of this is funded through health insurance, which is held by about 1.36 million New Zealanders.

Health insurance could be playing a bigger role in meeting future healthcare costs and thereby relieving the pressure on government budgets and the public health system.

Private health insurance is ideally placed to be able to routinely fund high-cost treatments, which user charges cannot. We just need to address some of the disincentives that stand in the way of more people taking out cover.

Fringe benefit tax (FBT) has been cited as a big impediment for employers taking on workplace health insurance schemes. We have about half a million people covered through their workplace, but that number could be much higher if FBT was removed.

There are other ways we can encourage employers to fund health insurance for their staff that are worth taking a look at, and the industry is keen to have a dialogue with the Government about those.

Insurance works by aggregating premiums across a large number of people in order to fund the healthcare costs which might otherwise be unaffordable or cause financial hardship.

The fact that New Zealand can achieve $1.13b annually of healthcare funding through 28.5 per cent of the population having health insurance indicates that there is significant scope to increase the contribution to future healthcare costs by lifting coverage rates.

Having health insurance provides certainty and timely access to treatment for those who have it, while freeing up public resources to tackle key public priorities such as primary care and chronic conditions.

The Government needs to face up to the unsustainability of future health spending and develop a collaborative strategy to reduce dependency on public financing and move closer to the OECD average for public/private health spending shares. It won't be able to raise the age of eligibility for surgery, and it will have to act before 2040.

• Roger Styles is chief executive of the Health Funds Association of New Zealand.